Reflections, Observations, and Analyses Pertaining to the Canadian Political Scene

Saturday, September 9, 2017

Bill Morneau's Tax Reforms

I have been following with interest the current discussion, sometimes waxing into hysteria, over Finance Minister Bill Morneau's plan to close small-business loopholes that allow such 'mom and pop' operators as lawyers, doctors and dentists to evade paying their full share by "sprinkling income" to family members who do not actually work for these incorporated entities.

If this is just one of many reforms being planned, it is a good start. If it is to be the only reform, it is a paltry effort, as it will yield only $250 million annually, and perhaps only intended as a form of 'bread and circuses' for the masses.

While the usual suspects are calling it a tax grab and predicting dire consequences, I am happy to report that many others see it as simple justice and have a more mature view of taxation in general.

The following two letters from The Toronto Star illustrate views that are anything but reflexive denunciations.

Re: Morneau not swayed by tax-plan backlash, Sept. 6

I am writing in regard to the well-funded backlash against amendments to our tax laws that will finally close a fraction of the loopholes that unduly benefit Canada’s wealthiest citizens.

I am a middle-aged, median-income wage earner who pays his full tax bill every second Thursday. I come from a family of business people and I possess no particular bias against productive entrepreneurs or the genuine spirit of entrepreneurship.

In my experience, business owners are primarily motivated by a desire to be their own boss. As proud and independent operators, they would be the last people to come looking for a crutch from government. But that is exactly what successive Liberal and Conservative governments have provided.

Our tax system has become the ultimate insider deal, in which the well-connected consistently rewrite the rules to escape the rational and just responsibilities that should be placed upon them by a progressive income-tax system in a democratic nation.

It is beyond any doubt that we have a two-tier income-tax system, in which wage and salary earners are routinely expected to pay their full share. Meanwhile, far too many entrepreneurs play by a set of rules concocted for their own benefit, with the exclusive goal of shifting the tax burden to others who can afford it less.

The Liberal Party ran on a platform of respecting the middle class and I cannot imagine a better opportunity to demonstrate your commitment to that platform than by tackling the egregious and entirely undemocratic imbalance in our tax system.

I am not underestimating the amount of guts it will take to tackle the monstrously dysfunctional and distorted tax laws of this country but a refusal by the Liberals to do so will leave the door open for others to champion the cause.

We need a tax system that puts the needs of the country ahead of the needs of the country club. Will you actually take on that challenge?

If middle-class Canadians had the same attitude toward paying taxes that the people at the top did, our country would be just another bankrupt, basket-case banana republic.

Democracy is not free, nor is it particularly cheap. Please share that information with those who are panicking at the prospect of finally paying their fair share.
Mike Vorobej, Ottawa

Canada has finally got economics right. I am seeing more and more Mercedes, BMWs, Lexus, Audis, Range Rovers, Maseratis and Teslas, along with the increasingly frequent Bentleys, Ferraris and Lamborghinis. According to BMO, luxury car sales have increased 37 per cent since 2013.

Just think, years ago, all that money would have been redistributed — wasted! — through a progressive tax system to provide resources for kids with disabilities in school, to reduce health-care wait times, to fight poverty, to support the elderly and so on.

If this is what a free society looks like, then our fiscal policies are right on track. Tax cuts since 2006 redirect $43 billion per year from social programs to individuals, and the top 20 per cent of income earners take 36 per cent of that.

Canada has been lowering the corporate tax rate for years, arguing it stimulates growth. Meanwhile, corporate divestment increases as taxes get lower.

The upside is that those billions of dollars go to wealthy shareholders who pay a fraction of the tax rate on that income than those who actually work for a living.

Which brings us back to the increased number of luxury cars on the road. Well, that and borrowing against home equity, but let’s not burst that bubble.